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Energy experts warning gas prices could spike again


WASHINGTON — Power woes in the West, heating-oil shortages in the Northeast, high natural gas prices in the Midwest: The country already has seen its share of energy problems in a waning winter that is not yet quite at end.

Now, even with summer driving season still appearing as a distant fantasy, energy experts are warning drivers — especially those in the nation's midsection — to brace for a possible repeat of last summer's soaring gasoline prices.

Illinois congressmen are trying to get a jump on the situation by asking the nation's large oil companies to describe their preparations for the summer.

The state's two senators and 17 of its 20 House members made the request Friday in a letter to the American Petroleum Institute, which represents major oil companies.

"We would like to know what steps members of API are taking to address possible shortage problems," the letter said.

John Felmy, API's director of policy analysis and statistics, said he had not seen the letter, but he sees little reason to worry too much about summer just yet.

"It's too soon to tell, but nothing dramatic jumps out," he said. "We're keeping an eye on it."

Friday, pump prices in Chicago and Milwaukee were within pennies of the national average of $1.44 a gallon, according to the American Automobile Association.

Last May and June, however, prices in Chicago, Milwaukee and Detroit rose well above the $2 mark — as much as 65 cents a gallon higher than the national average.

At the time, Republican leaders in Congress said stricter clean-air goals in an Environmental Protection Agency smog-reduction program were largely to blame.

In the nation's smoggiest cities — in the Northeast and areas around Milwaukee, Chicago, St. Louis, Houston, Dallas, Los Angeles, San Diego and Sacramento, Calif. — gas stations were required to start selling a special reformulated gasoline blend last summer.

Most areas blend their gas with MTBE, or methyl tertiary butyl ether, to make it burn cleaner, but, in Milwaukee and Chicago, the gas is blended with corn-based ethanol.

Congressional Republicans said that complications in making the new ethanol blend were exacerbated when the Clinton administration refused to give refiners flexibility in meeting the standards.

Illinois lawmakers are asking again for help in that area, former President Clinton and other Democrats lawmakers said the extra cost of the new rules — a few pennies a gallon — could not account for the enormous price difference at the pump. They suggested oil companies might be taking advantage of the regulatory changes to make extra profit.

A federal investigation into the situation found it was unlikely that stricter pollution-reduction rules explained the price jumps, according to an interim report issued last July, and, in a letter earlier this month, Federal Trade Commission Chairman Robert Pitofsky said there also is no evidence oil companies conspired to gouge Midwestern motorists.

Now, some of the same circumstances of last year have returned, according to a report from the end of February by the Energy Department's Energy Information Administration.

Crude oil prices are high, and inventories are low. Experts are watching the Organization of Petroleum Exporting Countries meeting next week to see if they cut production, which would raise prices further.

Inventories of both conventional and reformulated gasoline are slightly higher than a year ago nationwide but also are below average, according to the Energy Information Administration. The same is true for supplies of reformulated gasoline in the Midwest.

Recent shutdown of a refinery — which supplied 8 percent of Chicago's gasoline — in the Chicago suburb of Blue Island, however, adds an additional element of uncertainty, the EIA said.

The result, the Illinois congressmen said, could be gas as high as $3 a gallon by summer in Chicago.

"Low inventories leave little cushion to absorb unexpected events such as refinery or logistical disruptions," the EIA report said. "We are not comfortable with how this summer is shaping up so far."

-- Martin Thompson (, March 10, 2001


From the Crain's Chicago Business Newsroom

Group raises alarm on gas supply • March 10, 2001 WASHINGTON—Concerned that gas prices in Chicago might exceed $2 a gallon again this summer, the Illinois congressional delegation is pushing the U.S. Environmental Protection Agency (EPA)and the oil industry to avoid shortages. With summertime clean-air requirements starting June 1, a recent delegation letter asked EPA Administrator Christine Todd Whitman to allow more flexibility in the production of ethanol-blended gasoline, which would increase supplies.

Last week, a delegation letter asked the American Petroleum Institute (API) to explain what refiners are doing to prevent shortages and price increases in light of higher crude oil prices and a reduction in the state's refining capacity since last year.

Midwest reformulated gasoline inventories are slightly above average for this time of year, says Ron Planting, an API analyst, but refiners won't start making summer-grade gas for a few more weeks

-- Martin Thompson (, March 11, 2001.

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